Mumbai: The legal battle between the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority (Irda) over the regulation of unit-linked insurance plans, or Ulips, is set to be fought in India’s highest court.
The initial plan was to move one of the high courts, but this is being changed after a second public interest litigation (PIL) was filed in the Allahabad high court on Wednesday. Last week, the first such PIL was filed in the Bombay high court. Since different high courts across the country could rule differently in the cases, it makes sense for the regulators to escalate matters to the apex court.
Listen to Mint’s consulting editor Monika Halan explain what the Sebi-Irda tussle on Ulips is all about
A person familiar with the development told Mint that Sebi has already sought legal opinion on moving the Supreme Court. It is in the process of discussing this with Irda and both the regulators will move the apex court very soon.
Irda chairman J. Hari Narayan was not available for comment.
The Ulip case will create history as there has not been any instance in the past of regulators taking each other head on.
Both Sebi and Irda officials met the attorney general, the highest law officer of the country, on Thursday, a Sebi lawyer said, but the attorney general declined to confirm this.
Ulips are insurance products that invest a part of the premium paid by investors in equity instruments, while another part accumulates as insurance. High commissions of up to 40% have motivated the insurance agents to aggressively sell Ulips in the past few years. Ulips account for up to 90% of the new business premium for some of the private sector life insurers.
While the turf war between the two on the regulation of Ulips, which combine the features of insurance as well as investments, began almost a year-and-a-half back, the capital market regulator on 9 April sent orders to 14 privately held life insurers, banning them from selling Ulips.
Irda retaliated immediately, asking life insurers to continue selling Ulips, ignoring the Sebi order. The insurance regulator dubbed Sebi’s action as “misconceived” and said it did not have the jurisdiction to pass such an order. Ulips, according to Irda, are essentially insurance products and should continue to be under its jurisdiction.
Irda said that the Sebi order could lead to a substantial loss to the policyholders and to the insurers, and destabilize the market. Sebi, which consulted the attorney general before passing its order restricting the insurance players from selling Ulips without its clearance, said Ulips have two components—investment and insurance—and investment is indeed the capital market’s jurisdiction.
On 13 April, Mumbai-based investor Rajendra Thacker had filed a PIL in the Bombay high court over the Irda-Sebi spat on Ulips. The PIL seeks reversal of the Sebi ban on the sale of Ulips. The PIL has been filed on the ground that several hundred thousand investors were suffering from anxiety and uncertainty about their investments due to the Sebi order. On the same day, India’s finance minister Pranab Mukherjee brokered a temporary truce between the two regulators, asking them to maintain status quo and approach the courts. A day later, Sebi said its ban on sale of new Ulips remained.
Dhruv Kumar, a lawyer and former insurance professional, filed the second PIL in the Allahabad high court against Irda, seeking Sebi’s intervention and regulation of Ulips.
Manish Ranjan in New Delhi contributed to this story.